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CALIFORNIA’S ELECTRICITY MARKET MELTDOWN 1 Paul L. Joskow The lesson to be learned from California's exploding electricity prices and the threat of bankruptcy for its utility companies is not, as some have suggested, that electricity deregulation is inherently a bad idea. California's system blew up when the flaws in the way it implemented reform collided with a run of bad luck. In early 1993, when the California Public Utilities Commission began a comprehensive review of the state's electricity industry - then running under the old framework of regulated utility monopolies - the state was under pressure from industrial consumers to reduce electricity prices that were among the highest in the nation. The high prices were attributed to the utilities' costly nuclear power plants, expensive long-term contracts with independent power suppliers, excess generating capacity, and inefficient regulation. The Commission's vision for reform, articulated in 1994, was built around a new industry structure. The production of electricity from existing generating plants and the entry of new plants would no longer be regulated by the state, and the power they produced would be sold in a new, competitive wholesale market. Homeowners, factories and businesses would have the choice of using the transmission and distribution wires of their old local utility companies for “direct
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This note was uploaded on 06/16/2010 for the course MS&E 369 taught by Professor Blakejohnson during the Spring '08 term at Stanford.

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